Gulf Keystone Petroleum cheered by results of latest Kurdistan well

Gulf Keystone Petroleum (LON:GKP) , the oil and gas group active in the Kurdistan region of Iraq, this morning reported that it had finished drilling and testing operations on its Shaikan-3 shallow appraisal well. The well was drilled to 1,100m in order to test Cretaceous age rock intervals for producible oil - an area that could not be completed properly in the original Shaikan-1 well that was drilled in 2009. Flow tests and log evaluations have focused on resources in the Garagu, or lower portion, of the Cretaceous rock. The company said there was a 50% (P50) chance that oil in place volumes were 220 million barrels and a 10% (P10) chance that the volumes were closer to 2.2 billion barrels. Gulf Keystone is currently involved in an appraisal and exploration programme on its Kurdistan blocks where it wants to firm up the precise nature of the Shaikan field. The company has already discovered between 1.9 billion (P90) and 7.4 billion (P10) barrels of oil in place in the deeper Jurassic and Triassic formations. It said the large spread between P50 and P10 volumes in the latest well was due to the uncertainty over the exact nature of the Cretaceous down dip, on the flanks of the Shaikan structure. If the Cretaceous is oil bearing near the flanks, then the P10 volumes become more likely and it is possible that the oil will also be less viscous and of higher API gravity. In the meantime, due to the different characteristics of the Cretaceous oil, the Shaikan-3 well has been completed as a second Jurassic producer from the Sargelu formation and will flow into the same test facilities as the Shaikan-1 well. Gulf Keystone has a 75% working interest in the block and is partnered with the MOL subsidiary, Kalegran, and Texas Keystone which have the remaining 20% and 5% working interests respectively. The partner group is now set to formulate a development plan for the new resources. John Gerstenlauer, Gulf Keystone's chief operating officer, said: "The Cretaceous resources evaluated by the Shaikan-3 well are massive by any standard. They represent a significant oil resource for Kurdistan and Iraq. It is a further demonstration of the huge hydrocarbon potential of the area." In early December the partners began drilling the Shaikan-2 appraisal well, which could eventually go as far as 5,000 metres. The well design for Shaikan-2 has been modified to drill through the geo-pressured sections of the Triassic age rocks. This high pressure interval forced the cessation of drilling on Shaikan-1, when the well experienced the inflow of significant volumes of oil and gas from a section of the middle Triassic. Drilling and testing is expected to take six months. Shares in Gulf Keystone lost ground over the Christmas holidays after the company reported that legal action had been launched against it by a US consultancy firm called Excalibur Ventures. While the nature and credibility of the claims was unclear, Excalibur is understood to be fighting for an interest of up to 30% in Gulf Keystone's blocks in Kurdistan. Chairman and chief executive Todd Kozel, played down the seriousness of the action and said the company was confident of defeating the claims. Shares in the group gained 3% to 168.5p during the morning.